If you own your home, you’ve likely heard the term homestead before and have a vague idea that it’s important, but do you know what it really means? Surprisingly, homestead isn’t really just one thing. Rather, it is a collection of rights and benefits that stem from Article VII, §6 and Article X, §4 of the Florida Constitution and which benefit dwellings owned by the occupants. These rights include:
1. Tax exemption.
2. Protection against spousal alienation;
3. Exemption from probate;
4. Exemption from forced levy;
5. Limitation on increased tax valuation;
Establishing, preserving and protecting homestead status is a crucial element of a well-designed estate plan. Understanding what these rights actually mean and how they work together is therefore crucially important. The following is a brief primer.
Homestead Tax Exemption
This is probably the benefit with which most people are familiar. According to the Miami-Dade County Property Appraiser’s website:
The Homestead Exemption is a valuable property tax benefit that can save homeowners up to $50,000 on their taxable value.
o The first $25,000 of this exemption applies to all taxing authorities.
o The second $25,000 excludes School Board taxes and applies to properties with assessed values greater than $50,000.
Essentially, between $25,000 to $50,000 of a homestead’s property value is tax exempt, depending on the taxing jurisdiction. For example, a property that is appraised for tax purposes at $500,000 would be assessed at between $450,000 to $475,000, depending on the taxing jurisdiction. However, this exemption is not automatic. New homeowners must apply for the exemption for before March 1 of any given year. After the initial application, no further action is usually needed as the benefit renews each year.
This benefit, however, is strictly limited to owner-occupied residences. Renting a homestead, or even a portion of it, for any amount of time may cause the owner to lose this homestead benefit for that year. Also and as with most misrepresentations to government, misrepresenting the homestead status of a house that is actually rented is a criminal offense.
Protection from Spousal Alienation
Under this provision, one spouse cannot sell, mortgage or otherwise alienate the homestead, or any portion, without the consent of the other spouse. Note, this applies equally in cases where only one spouse actually holds title. In such cases, the titled spouse must still obtain permission from the non-titled spouse before selling, mortgaging or otherwise alienating the homestead.
Exemption from Probate
Because probate proceedings involve only assets subject to creditor claims and homesteads are exempt from creditors, they are not subject to probate estates and will pass automatically by operation of law without any court involvement. However, it may still be a wise idea to open a probate estate, even if for the sole purpose of obtaining a court order declaring the property homestead and thus exempt from probate.
Also, this exemption applies equally well in cases where homestead is retitled into a trust. Essentially and assuming all other aspects of the homestead status are respected, primary residences can be titled in a trust and still preserve their homestead status for all purposes.
Protection Against Forced Levy
The term “forced levy” is merely a legalism for legal process to seize property in order to satisfy the claims of creditors, usually in the form of a judgment. Essentially, no claim by creditors can cause a judgment or other lien to apply to homestead property. The sole exception being when the exemption is voluntarily waived, such as in the case of a mortgage.
In this regard, Florida is virtually unique in the US. The vast majority of the states that provide a homestead exemption from forced levy will limit the amount of the exemption. Not Florida, though. The protection extends to the full value of the homestead, provided it is not greater than ½ acre in an incorporated area or 150 acres in an unincorporated area.
Further, even after a homestead is sold no judgment liens will attach to the funds provided they are reinvested in another homestead property. However examined, this exemption from forced levy provides a significant advantage and is always a key component of asset protection and estate planning.
Limitation on Increased Valuation
This benefit refers to the statutory exemption under the Florida Save Our Homes amendment to the Florida Constitution. This provision limits the annual increase in the assessed value of homesteads to 3% or the change in the National Consumer Price Index (CPI), whichever is less. This provision strongly benefits persons who hold their homestead for many years, especially when inflation exceeds 3%.
This benefit is now also portable. Again, according to the Miami-Dade property appraisers’ website:
Property owners with Homestead Exemption and an accumulated SOH Cap can apply to transfer (or "Port") the SOH Cap value (up to $500,000) to a new homestead property. This application is known as the "Transfer of Homestead Assessment Difference", and the annual deadline to file for this benefit and any other property tax exemption is March 1st. First-time Homestead Exemption applicants and persons applying for the Homestead Assessment Difference (Portability) can file online.
Conclusion
The above rights and benefits all apply equally well if the owner owns legal title to the property or only beneficial title through a trust. In all circumstances, homestead property is a significant asset and one that plays a key role in any estate plan or asset protection plan.
This article is provided for informational purposes only and is not intended as legal advice. For further inquiry, please feel free to contact me at the email or telephone listed below.
